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Legal provisions on foreign loans

Index

In the process of establishing a business as well as implementing an investment project, there will be times when capital will be needed to continue the project in Vietnam. Enterprises can choose in the form of domestic or foreign loans, in this article only foreign loans are mentioned.

Legal basis

Law on Credit Institutions 2010 amended and supplemented in 2017

Decree 219/2013/ND-CP on management of enterprises’ borrowing of foreign loans and payment of foreign debts without government guarantee.

Circular 12/2014/TT-NHNN regulating on conditions for foreign loans of enterprises without government guarantee.

Circular 03/2016/TT-NHNN guiding foreign exchange administration in respect of enterprise’s foreign borrowing and foreign debt repayment of enterprises.

Circular 05/2017/TT-NHNN amending Circular 03/2016/TT-NHNN guiding foreign exchange administration in respect of enterprise’s foreign borrowing and foreign debt repayment of enterprisesto the Governor of the State Bank of Vietnam promulgated.

What is a foreign loan?

According to the Clause 1, Article 3 of Decree 219/2013/ND-CP: “Borrowing of a foreign loan means a borrower receiving a credit amount from a non-resident through signing and implementing a foreign loan agreement in the form of loan contract, contract on goods purchase and sale on deferred payment, loan provision entrustment contract, financial leasing contract, or issuance by the borrower of debt instruments.”

Foreign loans not guaranteed by the Government: According to Clause 2, Article 3 of Decree 219/2013/ND-CP: “Borrowing of a foreign loan without government guarantee (below referred to as “borrowing a foreign loan by the mode of self-borrowing and self-payment”) means a borrower taking a foreign loan by the mode of self- borrowing and self-responsibility for payment to the foreign lender.”

Academic knowledge as a rule is. In simple terms, in the process of establishing a business as well as implementing an investment project, there will be a time when capital will be needed to continue the project in Vietnam. Enterprises can choose in the form of domestic or foreign loans, in this article only foreign loans are mentioned. In order to obtain foreign loans, enterprises and investors must meet the conditions as well as regulations on “Foreign loans” according to the State’s regulations. Thereby making it easier for the State to manage this issue.

Types of foreign loans:

Foreign loans are divided into 02 categories including:

  • Short-term loan: A loan with a loan term of less than 01 year.
  • Medium and long-term loans: Loans with a loan term of more than 01 year.

According to each type of loan, the concepts, conditions as well as the purpose of borrowing are very different, based on Circular 12/2014 / TT-NHNN are compared as follows:

ContentShort-term loanMedium and long-term loans
Form of loan contractThe loan contract must be in writing and must be duly concluded by the parties before disbursement
Loan currencyThe borrowing and repayment of foreign debts must be carried out in foreign currency. The parties only agree to borrow and repay foreign debts in Vietnamese dong in some special cases.
General conditions for allowing foreign loans / Purpose of use of the loan

Enterprises may only borrow foreign loans for the following purposes:

To implement production, business plans and investment projects using foreign loans of the following subjects:

a) Of the borrower;

b) Of the enterprise in which the borrower contributes direct investment capital (Only medium and long-term loans are applied). In this case, the limit of the borrower’s loan amount on the total loan turnover for the production and business plan or investment project shall not exceed the capital contribution rate of the borrower in the enterprise to which the borrower contributes capital.

Production and business plans, investment projects using foreign loans as prescribed above must be approved by competent authorities.

2. Restructure the borrower’s foreign debts without increasing borrowing costs.

Additional Loan Conditions/Loan Use PurposeBorrowers are not allowed to borrow short-term for medium or long-term purposes

(i)     In case the borrower has an investment project using foreign loans that has been granted an investment certificate, the balance of medium and long-term loans (including domestic loan balance) of the borrower serving that project shall not exceed the difference between the total investment capital and contributed capital recorded in the investment certificate;

Example: Total investment capital 30,000 USD, Investor’s contributed capital 15,000 USD. In this case, the enterprise/investor is only allowed to borrow medium and long-term foreign loans of 15,000 USD or a lower amount.

(ii)   In case the borrower borrows abroad to implement production and business plans or investment projects that are not granted investment certificates, the balance of medium and long-term loans (including domestic loan balances) of the borrower does not exceed the total demand for borrowed capital in the production and business plan, investment projects have been approved by competent authorities in accordance with the provisions of law.

Foreign loan execution account:

According to Article 24 of Circular 03/2016/TT-NHNN, the borrower must open a loan account and repay foreign debts at an authorized bank in Vietnam to carry out money transfer transactions related to foreign loans.

In case the borrower has foreign direct investment capital, they may use a direct investment capital account or a foreign loan or repayment account to carry out relevant money transfer transactions.

Note: Each foreign loan can only be made through 01 bank and the borrower can use 01 account for many loans.

Registration of foreign loans with the State Bank:

As mentioned above, while the State Bank can easily control the foreign borrowing status of enterprises, the Law also provides for loans that are required to be registered with the State Bank. According to Article 9 of Circular 03/2016/TT-NHNN including:

  1. Foreign medium and long-term loans.
  2. Renewed short-term loans which have more than 01 (one) year of maturity term.
  3. A short-term loan does not have an extension contract but has a principal balance at the time of turning 01 year from the date of first withdrawal of capital, unless the Borrower completes the repayment of the loan within 10 days from the time of 01 year from the date of first withdrawal.

According to the above provisions, short-term loans (less than 01 year) will not have to be registered with the State Bank. In fact, the Bank to conduct a short-term loan procedure is also very simple.

Competence to certify foreign loan registration:

The competence to certify foreign loans is prescribed according to Article 18 of Circular 03/2016/TT-NHNN:

  • The State Bank (Foreign Exchange Administration) shall carry out confirmation of registration or registration for changes in respect of a loan for which quota is more than USD (or other equivalents) 10 (ten) million and other foreign loans denominated in Vietnam dong.
  • The State Bank branches of centrally-affiliated cities and provinces where borrowers’ head offices are located shall carry out confirmation of registration or registration for changes in respect of a loan for which quota is more than USD (or other equivalents) 10 (ten) million.

Time limit for submission of loan registration/loan change application:

The borrower must submit the application within 30 (thirty) days from the following time:

  1. For foreign medium and long-term loans:

The date of signing the medium or long-term foreign loan agreement or the date of signing the guarantee document in case of a guaranteed loan or the date of signing the written withdrawal agreement in case the parties agree on the withdrawal of capital on the basis of the signed framework agreement and executed before the withdrawal of capital

  1. Renewed short-term loans which have more than 01 (one) year of maturity term.

The date of signing the agreement to extend the short-term loan into a loyal, long-term.

  1. A short-term loan does not have an extension contract but has a principal balance at the time of turning 01 year from the date of first withdrawal of capital, unless the Borrower completes the repayment of the loan within 10 days from the time of 01 year from the date of first withdrawal.

The date is 01 year from the date of first withdrawal of capital for self-repayment loans.

The duration of the State Bank’s written loan confirmation

  • 12 (twelve) working days of receipt of valid and sufficient dossiers from borrowers in the event that borrowers choose to apply for such registration online;
  • 15 (fifteen) working days of receipt of valid and sufficient dossiers from borrowers in the event that borrowers choose the conventional registration; or
  • 45 (forty-five) working days of receipt of valid and sufficient dossiers from borrowers in the event that loans denominated in Vietnam dong are subject to consideration and consent of the Governor of the State Bank in accordance with prevailing laws and regulations on enterprises’ eligibility conditions for foreign borrowing of enterprises that are not guaranteed by the Government;
  • In the event of rejecting confirmation of loan registration, the State Bank must give written explanation for such rejection.

Foreign loan registration dossier:

Foreign loan registration dossier/ Foreign loan change registration is detailed in Article 14 of Circular 03/2016/TT-NHNN

View information details at

>> Loan application procedure/Foreign loan change registration procedure<<

Foreign loan reporting regime

An important point of note regulating Foreign Loans is the borrower’s Loan reporting regime. Borrowers can choose online reporting through the https://qlnh-sbv.cic.org.vn or choose the traditional form of reporting.

  1. For reports through the https://qlnh-sbv.cic.org.vn/ page as follows:
  • On the quarterly basis, no later than the 5th day of the month immediately after the reporting period, the borrower must prepare an online review report on short-term, mid-term and long-term loans on websites.
  • Within a maximum period of 10 (ten) working days of receipt of online report from the borrower on websites, the State Bank branches must approve such report on websites for the purpose of storing information in the database. Where reporting information is accurate, the borrower shall be notified of completion of reporting by emails in accordance with regulations. Where there is inaccurate information or any information that need to be clarified, the State Bank branch shall send the notification email to the borrower to make data adjustments.

Note: Although the regulations on loan registration are only required for foreign medium and long-term loans. As for loan reporting, it applies to both short, medium and long-term foreign countries. Short-term loans must still be reported quarterly and annually to the State Bank.

For traditional reports:

  • On the monthly basis, no later than the 5th day of the month immediately after the reporting period, the borrower must send the review report on short-term, mid-term and long-term loans by completing the form given in Annex 04 to this Circular.
  • Within a maximum period of 10 (ten) working days of receipt of the report from the borrower, the State Bank branch shall input the borrower’s report in the form posted on websites to store information in the database.

In addition to quarterly and annual reports, there are also unscheduled reports: In unexpected cases or when necessary, borrowers must make unscheduled reports at the request of the State Bank.

The above are the sharing of lawyers, providing information not for consulting purposes and not consulting opinions, Vo Consultants is not responsible in all cases.

For each specific case, please contact Vo Consultants for detailed advice. Business’s consulting lawyer: 0909 865 891 – 0901 476 391

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Author

Author

Lawyer Vo Thi Man

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